“They don’t ring a bell at the top of the market, but if they did, the sound would be deafening!”
Up until recently, the residential property market, between £1million-£3million in the Capital, has been as busy as we have seen it in a very long time. Very few properties were coming on to the market for sale, and the stock selection was scarce at best; when a fresh new seller eventually appeared, there was a ‘bun fight’ between estate agents to nab the instruction.
As such, agents ‘dropped their trousers’ on their fees and were usually given a ‘good kicking’ by the seller, who was in an unusually strong position to negotiate downwards.
Agents’ fees 20 years ago, were regularly 2.5 to 3% but they are now a paltry 1.5% to 2%. This is proper deflation if ever we have seen it.
Once you had the mandate from the vendor, agents trotted in some forty ‘would-be buyers’ in the space of two weeks and invariably, five serious bidders were procured. In-order to settle the buying-fest, an elegant solution was achieved by a contest of sealed bids to decide the winner.
This convinced the owner that they had accepted the best terms available to them, as high as could be possibly expected.
At Glentree, through this method, we regularly achieved some 10% more than the guide price at the very least, often more.
The seller and buyer were content, and we were delighted. Happy days!
However, change is in the wind. In the last four weeks, as the economic storm clouds gather on the horizon, with fears of recession, higher inflation and increased borrowing costs, there is a palpable sense of unease that seems to be percolating through the ranks.
Let’s face it, although unemployment is at a 50-year low, the gyrations of the capital markets and general consumer slowdown seem to be having their overall effect on sentiments, and buyers are sensing a greater choice of homes to buy on the market, as the supply of properties increases.
Although ‘they do not ring a bell when the market mood changes’, there is no question that we are seeing a slightly greater supply of instructions, and buyers are being more reserved with their offers, as they feel that the top of the market may have already passed.
Rather than forty prospective purchasers looking at one property, this has been reduced by 50% to, say, twenty, and instead of there being five offers to purchase, there are now two.
Within six months, I predict that the unassailable position that the sellers have at the moment will shift, so that the buyer will have more say in the price paid as their negotiating strength increases. If this is the case, values could edge slightly downwards.
My advice to anyone considering selling is to do so now if they want to maximise value.
If you have locked in a fixed rate mortgage at low interest rates, you are laughing!
Mortgage lenders are withdrawing their affordable, fixed rate products with the speed of ‘Arkwright’s till’ in ‘Open All Hours’, and you better be quick to find a mortgage deal which is affordable, particularly given the Governor of the Bank of England’s comments recently that the 0.25% increases on lending rates could be a thing of the past, as he tries to grapple with the ‘Banana Republic’ scale of inflation.
An average sale was taking four-six weeks to organise, and I would have thought this could double very shortly.
Frankly, with so little stock available in the market, agents were having a tougher time, so the availability of new stock, in greater numbers, is not bad news for them.
As increased taxes bite and inflation erodes standards of living, we’re all going into tougher times and to be fair, even if prices do ease, it’s only the difference between the sale and the purchase value that really matters.
Sceptical economic analysts always warned various Chancellors and Treasury Secretaries of the western economies that rampant quantitative easing, after the crash of 2008, may solve short term liquidity but often would lead to runaway inflation, further down the track.
With the knee-jerk panic during the Covid slowdown, the QE machines were cranked-up, ignoring the potential inflationary effects of this process and we are now seeing the ramifications of this in the present high inflationary environment, which we haven’t witnessed for forty years or so.
We all know that a good deal of the inflationary pressures are external i.e. the rises in energy and commodity costs due in part by the Ukrainian war and not assisted by disrupted supply issues, as a direct result of Covid.
A little bit of inflation is not necessarily a bad thing, as the value of equity rises in relation to debt, therefore exposing more net wealth. However, it is a lagging indicator and at the level of 8 to 10% who knows how much it will rise before it reaches the crescendo.
There is a school of thought though, which tells us that the spikes of energy and food prices will not repeat themselves to the same degree next year, and inflation could be down to 4% in 2023. In which case, it will ease all the concerns about a crash in residential house prices.
Frankly, I don’t believe that this will happen anyway, but certainly the rate of increase in values that we’ve seen in the past year will not be sustainable and values could gently come down, as stock levels increase.
Undoubtedly for those in rental accommodation, inflation will have a caustic effect on living standards and as we have seen recently, trigger a tsunami of private and public sector wage claims which will only serve to exacerbate the problem.
As far as Uber-tenants are concerned, they are renting properties with gay abandon. We are, at the moment, trying to tie up two separate transactions on super mansion’s for circa £35,000 a week. For those with calculators, that is a humongous sum of £1.8 million per annum.
To the tenant this is a rather attractive stamp duty saving scheme, since if they’re in the (UK) for say five years, rather than purchasing a property, they can rent the same and save all the stamp duty, estate agent and solicitors fees, which could amount to 25%.
Essentially, they can have five years rent free, and keep their money abroad. Needless to say, the Treasury is losing the best part of £5million in stamp duty had they purchased instead of rented.
Interesting times n’est ce pas?